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Money Matters
USD Strength - was that it?
The last two weeks have been categorised by a sharp bout of USD strength.
Since U.S. Fed chairman Bernanke’s testimony to congress on the 8th of March, where he made no mention of another money printing program (QE3), the market has had it in their collective minds that the FED is changing course (super easy U.S. monetary policy has been at the very fore-front of FX moves since the GFC).
This is despite the fact that Bernanke, in his Q&A session at the congressional testimony, suggested that growth wasn’t following the improvement in jobs and that there was a ‘fiscal cliff’ approaching in the form of the withdrawal of some very supportive U.S government spending programs later in the year. Indeed in the FOMC meeting of last week, the FED reiterated their stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. Does that comment sound like the FED are about to change course?
So given my view that nothing has changed what can the charts tell us? Well everywhere I look the charts suggest that the USD strength was short term in nature and the bigger trends are reasserting themselves.
Exhibit 1 – NZD/USD weekly chart. A clear bullish hammer here last week with a similarly ill-fated trip south the prior week both suggestive that solid buying interest is present below 0.8180 (no closes lower than that the last two weeks despite dips toward 0.8060). Further the last 3 weeks appear merely ‘corrective’ to the bigger trend up off 0.7300. Note the gorgeous key weekly reversal at the 0.7300 lows!
NZD USD Weekly Chart click to view
Exhibit 2 – NZD/JPY weekly chart. Arguably the NZD/JPY is the ultimate arbiter of ‘risk’ and this chart is even more impressive. A fierce pullback on Bernanke testimony that was very short lived creating a very significant ‘hammer’ rejection followed by a seeming confirmation move higher last week.
NZD JPY Weekly Chart click to view
Exhibit 3 – The Dow Jones Index. The share market does not look concerned about higher interest rates anytime soon as it surges to new 4 ½ year highs.
The Dow Jones Index Chart click to view
In summation the 3 charts shown suggest strongly to me that the focus on a FED change these last two weeks is ill-considered and the broader conditions that have been in play for so long are now reasserting themselves.
